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Making a Success of Succession Planning
using the Critical Path Method
David W. BakerFarm Transition Specialist
Photos by USDA NRCS
ACKNOWLEDGEMENTS
Dr. Andrew Errington (died 2003)University of Plymouth, England
Dr. Walter WarrickDrake University
Dr. Michael DuffyIowa State University
John R. Baker, Attorney at LawIowa Concern Hotline
Is there a desire to continue family ownership of the farm family business?
Is there an heir or key employee capable of managing the farm family business?
Does the heir or key employee want to manage the farm family business?
Will the owner/managers recognize the authority of the successors?
Can the family withstand the stress that succession planning will generate?
Will the owners/managers actively manage the development of a farm family business succession plan?
Will the owner/managers transfer the management of the farm family business to the successor?
IMPORTANT CONSIDERATIONS
Have all stakeholders been identified, informed and involved?
Has a decision-making process been agreed upon by all parties?
Have the stakeholders developed a vision of their future and the future of the farm family business?
Have the necessary roles that will be filled by the stakeholders been identified?
Have successors been chosen for key positions and have training plans been developed for those positions?
Has an estate plan been developed and does it provide for equitable distribution of farm family business property?
Have all important parties been made aware of the details of the farm family business succession plan?
Have contingency plans been developed?
SIZE
START-UP GROWTH MATURITY DECLINE
ATTRIBUTES OF THE BUSINESS
HIGH RISK OF FAILURE STABLE BUSINESSSHORTAGE OF CAPITAL ADEQUATE CAPITALEXCESS LABOR SHORTAGE OF LABORLEARNING TO MANAGE CAPABLE MANAGEMENTEXPANSION GOALS EXIT GOALS
Business Life
SIZE
IN
DOLLARS
TIME
Business Growth Curve
THE FARM
Money Management
SUCCESSION PLAN
BUSINESSSUCCESSOR
HEIRS
Owner’s Goal:Continuation of familyownership of farmland
Owner’s Goal:Continuation of farm
family business
Assets
ESTATE PLAN
VALUESWhat is important to me?
What do I hold dear?
VISIONWhat does the future look like?
MISSIONWhy are we here?
What do we believe in?
GOALSWhat do we want to do?What do we want to be?
OBJECTIVESHow are we going to get there?
How will we know when we have arrived?
STRATEGIESWhat do we need to do?
What are we required to do?
TACTICSWhat do we need to carry out our strategies?
Who is responsible for the necessary activities?
ACTIVITYStrategic Business Planning
Estate Planning
Retirement Planning Expansion
Financial Analysis
Asset Inventory
Asset Analysis
Skills Assessment
Skills Training
Continuing Education
Business Meetings
Recreational Activities
Relaxation
Transfer
Planning
Owner Generation
Values – What is important to me?Vision – What does my future look like?Mission – Why am I here?Goals – What do I want to do or be?Objectives – How will I measure activity?Strategies – What is my plan?Tactics – How do I implement the strategies?
Self-AssessmentSkills Abilities
Essential Planning SkillsCommunicatingDecision making Conflict resolution
Successor Generation
Values – What is important to me?Vision – What does my future look like?Mission - Why am I here?Goals – What do I want to do or be?Objectives – How will I measure activity?Strategies – What is my plan?Tactics – How do I implement the strategies?
Self-AssessmentSkills Abilities
Essential Planning SkillsCommunicatingDecision making Conflict resolution
Business Succession Planning
BusinessResource inventory and analysis
Physical – Short, intermediate and long term property.Financial – Income statement, balance sheet, financial ratios.Personnel – Human assets.
Essential business principlesValues - What is important to our business?Vision - What does the future look like?Mission - Why are we here?Goals - What do we want to do or be?Objectives - How will we measure activity?Strategies - What is our plan?Tactics - How do we implement the strategies?
Business PlanningOpportunitiesThreatsStrengthsWeaknessesOne yearTwo yearsFive Years Ten Years
Retirement PlanningTimingResidenceIncome SourceHousehold BudgetRecreational NeedsHealth Care NeedsLong Term Needs
Transfer PlanningIncome Amount Source MethodHousehold BudgetManagementAssets
Estate PlanningEqual vs. EquitableBusiness AssetsPersonal AssetsConsistency FlexibilityLegal DocumentsLiquidity NeedsTax Consequence
Planning should be done simultaneously
because all planning areas influence one
another.
The Critical Path Method
• Identification of necessary resources
• Effective method of analyzing a complex process
• Calculates the minimum time for completion
• Prioritizes activities to be completed by that date
• Effective scheduling and monitoring of progress
• Focuses on the essential activities
• Provides a graphic view of the plan
Activities • Sequential activities: activities that
are dependent on other activities being first completed.
• Sequential Activities must be completed in an ordered sequence.
• Each activity in the sequence must be completed, or near completion, prior to the start of the next activity in the sequence.
• EXAMPLE:EXAMPLE:A foundation must be built A foundation must be built
before walls can be erected.before walls can be erected.
• Parallel activities: activities that are not dependent on the completion of a previous activity or activities.
• EXAMPLE:EXAMPLE: Selection of the paint color for Selection of the paint color for the kitchen walls. the kitchen walls.
Estimating Time• Difficult to estimate the length of time that an
activity will take • Particularly true if it is a new activity• Normal to underestimate the time need to
complete and activity• High priority activities must be carried before
immediate activities • Unexpected or unscheduled high priority work
that is forgotten • Accidents and/or emergencies • Meetings • Holidays and sickness• Break downs in equipment • Delays and Interruptions • Rejections due to quality or quantity• Etc. (If it can, it will and it will at the most
inconvenient time.)
• Develop a systematic approach to include these factors
• Rely on your experience
MethodologyList all activities in plan List the earliest practical start date; estimate length of
time to completion; if the activity is parallel or sequential; how to measure the activity; who is responsible for the activity; and how and to whom the activity will be reported.
The context of the activity determines if it is parallel or
sequential. Activity__________________________________________Start week __________________________Number of days to completion __________Sequential & dependent upon________________________Parallel _________________How will the activity be measured?____________________ Who is responsible for the activity?____________________How and to whom will progress be reported?
_______________
List all the activities need to complete the plan
Copy activities in the appropriate time period
• Begin with the activities with the earliest start dates
• Show the activities as arrows that end with a box
• Show the time taken to complete the activity above each arrow
• Show whether the activity is sequential or parallel
Critical Path Method Chart
Weeks
1 2 3 4 5 6 7 8 9 10
11
12
13
14
15
16
17
18
Sequential ------------------------ Parallel --------------------------
Schedule Activities
Schedule activities so that sequential activities are carried out in the proper sequence
Scheduled parallel activities so as not to interfere with sequential activities
Allow for the unexpected
Be prepared for “Murphy’s Law” be flexible with time schedules. Allow extra time.
The Critical Path is the longest sequence of sequential activities leading to the completion of the plan.
Any delay of in the commencement or completion of an activity on the critical path will delay the completion of the whole plan.
The time allowed for future sequential activities will need to be shortened.
Critical Path Method Chart
Weeks
1 2 3 4 5 6 7 8 9 10
11
12
13
14
15
16
17
18
Sequential ------------------------ Parallel --------------------------
The Critical PathThe Critical Path
Keys to Success
• Strong family relationships, trust and honor
• Excellent communication skills• Recognizing individual differences
and being able to compromise • Allow gradual management
participation• Encourage outside interests and
hobbies• Separate living areas helps separate
family and business decisions
Keys to Success(continued)
• Develop a flexible, written agreement that is appropriate to situation and update when necessary.
• Deal with non-farming heirs in a fair or equitable manner not always equal terms.
Conclusion:• Develop your own
basic plan using a proven system: values, vision, mission, goals, objectives, strategies, and tactics.
• Share openly and honestly to bridge the generation gap.
• Enlist experts when needed, i.e. financial consultants, lawyers, management specialists, mediators, and others.
Beginning Farmer Programs
• Farm On- A matching service for beginning and retiring farmers.
• Individual consultations for beginning or retiring farmers.
• Individual financial analysis of farm transfers.
• Research and resource data for farm succession planning.
BFC of Iowa Programs (cont.)
• Nationwide leadership as co-founder of the National Farm Transition Network.
• Participant in International farm transfer research with Japan, Australia, Canada, et al.
• Farm Savvy Resource Manual• Ag-Link- a special seminar and
training session for students and family members returning to family farm operations.
Presented by:
David W. BakerFarm Transition Specialist
Beginning Farmer Centerwww.extension.iastate.edu/bfc/
877.BFC.1999
Providing such programs as Farm On, Ag Link Seminar, educational materials, individual consultation, National Farm Transition Network
